At the Federal Home Loan Bank of San Francisco (Bank), our purpose is to enhance
the availability of credit for residential mortgages and economic development
by providing a readily available, competitively priced source of funds for housing
and community lenders. We are a wholesale bank—we link our customers to
the global capital markets and seek to manage our own liquidity so that funds
are available when our customers need them. By providing needed liquidity and
financial risk management tools, our credit programs enhance competition in
the mortgage market and benefit homebuyers and communities.
e are one of 11 regional Federal Home Loan Banks (FHLBanks) that serve the
United States as part of the Federal Home Loan Bank System. Each FHLBank operates
as a separate federally chartered corporation with its own board of directors,
management, and employees. The FHLBanks were organized under the Federal Home
Loan Bank Act of 1932, as amended (FHLBank Act), and are government-sponsored
enterprises (GSEs). The FHLBanks are not government agencies and do not receive
financial support from taxpayers. The U.S. government does not guarantee, directly
or indirectly, the debt securities or other obligations of the Bank or the FHLBank
System. The FHLBanks are regulated by the Federal Housing Finance Agency (Finance
Agency), an independent federal agency.
We have a cooperative ownership structure. To access our products and services,
a financial institution must be approved for membership and purchase capital
stock in the Bank. The members capital stock requirement is generally based
on its use of Bank products, subject to a minimum asset-based membership requirement
that is intended to reflect the value to the member of having ready access to
the Bank as a reliable source of competitively priced funds. Bank capital stock
is issued, transferred, redeemed, and repurchased at its par value of $100 per
share, subject to certain regulatory and statutory limits. It is not publicly
traded.
Our members may include federally insured and regulated financial depositories,
regulated insurance companies that are engaged in residential housing finance,
community development financial institutions (CDFIs) that have been certified
by the CDFI Fund of the U.S. Treasury Department, and privately insured, state-chartered
credit unions. Financial depositories may include commercial banks, credit unions,
industrial loan companies, and savings institutions. CDFIs may include community
development loan funds, community development venture capital funds, and privately
insured, state-chartered credit unions. All members have a principal place of
business located in Arizona, California, or Nevada, the three states that make
up the Eleventh District of the FHLBank System.
Our primary business is providing competitively priced, collateralized loans,
known as advances, to our members and certain qualifying housing associates.
Advances may be fixed or adjustable rate, with terms ranging from one day to
30 years. We accept a wide range of collateral types, some of which cannot be
readily pledged elsewhere or readily securitized. Members use their access to
advances to support their mortgage loan portfolios, lower their funding costs,
facilitate asset-liability management, reduce on-balance sheet liquidity, offer
a wider range of mortgage products to their customers, and improve profitability.
Our cooperative ownership structure has led us to develop a business model
that is different from that of a typical financial services firm. Our business
model is based on the premise that we maintain a balance between our objective
to promote housing, homeownership, and community and economic development through
our activities with members and our objective to provide a return on the private
capital provided by our members through their investment in the Banks capital
stock. We achieve this balance by delivering low-cost credit to help our members
meet the credit needs of their communities while striving to pay members a reasonable
return on their investment in the Banks capital stock.
As a cooperatively owned wholesale bank, we require our members to purchase
capital stock to support their activities with the Bank. We leverage this capital
by using our GSE status to borrow funds in the capital markets at rates that
are generally at a small to moderate spread above U.S. Treasury security yields.
We lend these funds to our members at rates that are competitive with the cost
of most wholesale borrowing alternatives available to our largest members.
We may also invest in residential mortgage-backed securities (MBS) up to the
regulatory policy limit of three times capital. Our MBS investments include
agency-issued MBS that are guaranteed through the direct obligation of or are
supported by the U.S. government and private-label residential MBS (PLRMBS)
that were AAA-rated at the time of purchase. We also have a portfolio of residential
mortgage loans purchased from members. Earnings on these mortgage assets have
historically provided us with the financial flexibility to continue providing
cost-effective credit and liquidity to our members. While the mortgage assets
we hold are intended to increase our earnings, they also modestly increase our
interest rate risk.
Our financial strategies are designed to enable us to safely expand and contract
our assets, liabilities, and capital as our member base and our members credit
needs change. Our capital increases when members are required to purchase additional
capital stock as they increase their advances borrowings, and it contracts when
we repurchase excess capital stock from members as their advances decline. As
a result of these strategies, we have been able to achieve our mission by meeting
member credit needs and maintaining our strong regulatory capital position,
while paying dividends (including dividends on mandatorily redeemable capital
stock) and repurchasing and redeeming excess capital stock. Throughout 2015,
the Bank continued to monitor the condition of its PLRMBS portfolio, the ratio
of the Bank’s estimated market value of total capital to par value of
capital stock, its overall financial performance and retained earnings, developments
in the mortgage and credit markets, and other relevant information as the basis
for determining the payment of dividends and the repurchase of excess capital
stock.
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